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The reason why exchange rate strategy discourages investors, raises inflation in Nigeria according to world Bank.

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Nigeria exchange rate strategy discourages investors, raises inflation - World Bank

  As it was appeared first in PRUDENTJ2, The World Bank says the Nigerian government's exchange rate management policies are undermining investment and fueling inflation. 

 The bank disclosed this in its November review plan for its development in Nigeria. While highlighting the role of the Central Bank of Nigeria in stabilizing the exchange rate, the World Bank said it had put a lot of pressure on naira, CBN has been raising the standard exchange rate, Prudentj2 report.

 He added that the CBN foreign exchange system was very strong, and that the system was driving inflation in the country. 

 The report read in part, “Government exchange rate policies continue to undermine investment and inflation. The stability of the exchange rate is a key objective of CBN policy, and to maintain its foreign reserves CBN continues to manage FX demand and restrict FX supply to the market. The pressure on naira remains tense, and while CBN has been raising the official exchange rate three times since the start of the epidemic (15 percent in March 2020, 5 percent in August 2020, and seven percent in May 2021.), FX executives remain so strong that they can respond to external shocks. 
  Meanwhile, exchange rate management has emerged as one of the key drivers of inflation. ” 

 The report also said that CBN still had to introduce sufficient flexibility for FX executives to respond further to external shocks, adding that the NAFEX standard was not a true indicator of market level. It read in part, “While CBN provided an average of $ 2.5bn to investors and exporters of the forex window a few months before the COVID-19 disaster, it provided only $ 0.5bn in the months that followed. “The NAFEX standard, which is now the leading trading level in the economy, continues to be managed and does not fully reflect market conditions. 

The same market premium above the NAFEX level reached 29 percent in August 2021 after CBN discontinued its weekly offer of $ 20,000 per bureau de change. CBN has been providing forex to BDCs since 2005, providing many opportunities for cash withdrawals and returns. 

 The World Bank has advised that a predictable, transparent and flexible foreign exchange management system is essential to attract and promote private investment.


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